started to edge higher before testing 1.1800, which aligns as initial support. If that level fails and turns into resistance additional losses toward 1.1750 (static level from November) and 1.1700 (psychological level, static level) could be witnessed.
On the upside, 1.1870 (static level) is interim resistance before 1.1900 (former support, psychological level) and 1.1930 (end-point of the previous downtrend, static level).
GBP/USD has edged higher toward 1.1850 in the European session on Wednesday after having slumped to its lowest level since late November at 1.1810 during the Asian trading hours. Although the pair could stage a technical correction in the near-term, a steady rebound looks unlikely with buyers refraining from betting on further Pound Sterling strength due to the policy divergence between the US Federal Reserve and the Bank of England.
While presenting the Semi-annual Monetary Policy Report to the US Senate Banking Committee on Tuesday, FOMC Chairman Jerome Powell opened the door to a 50 basis points (bps) rate hike in March. “If the totality of incoming data indicates faster tightening is warranted, we are prepared to increase the pace of rate hikes,” Powell noted in his prepared remarks and added that the terminal projection in the next dot plot will likely be revised higher.
The US dollar index gained more than 1% on a daily basis on Powell’s hawkish tone and GBP/USD suffered heavy losses.
Reuters reported earlier in the day that UK OIS markets are now fully pricing in a 25 basis points (BoE) rate hike for the first time since February 27. Although there is a hawkish tilt in BoE expectations, the policy divergence is more apparent than ever with the CME Group FedWatch Tool pointing to a 75% probability of a 50 bps rate hike at the next Fed meeting.
In the second half of the day, US ADP Employment Change data for February, which is forecast to improve to 200,000 from 106,000 in January, will be looked upon for fresh impetus. With a sharp decline in this print, the US Dollar could lose some interest, at least until the Bureau of Labor Statistics jobs report on Friday. A strong private sector employment growth, on the other hand, should continue to support the US Dollar in the short term.
